Figure 13
The market is initially in equilibrium at Point A. If supply shifts from S1 to S2 and the
price of cheeseburgers remains constant at $5.00, there will be
A) an excess supply of 6 cheeseburgers.
B) an excess demand of 6 cheeseburgers.
C) an excess supply of 3 cheeseburgers.
D) an excess demand of 4 cheeseburgers.
Economic income is
A) the amount of money a household can spend during a given time period without
increasing or decreasing its net worth.
B) income from the ownership of real property and financial holdings.
C) differences in wages that result from differences in working conditions.
D) payments by government to people who do not currently supply goods or services in
exchange.
The market will be in equilibrium if ________ is set ________ the equilibrium price.
A) a price floor; below
B) a price ceiling; below
C) actual price; above
D) actual price; below
If it is possible to make person A better off only by making person B worse off, then the
distribution of goods must be ________.
A) efficient
B) inefficient
C) equitable
D) inequitable
All of the following are assumptions of the Cournot model EXCEPT:
A) There are two firms in an industry.
B) Each firm takes the output of the other firm as given.
C) The firms behave so as to maximize their profits.
D) If the first firm cuts price, the second firm will follow and if the first raises price, the
second will not follow.
Which of the following characteristics is generally representative of developing
countries relative to developed nations?
A) a higher level of per capita GNI
B) a shorter life expectancy
C) a lower rate of infant mortality
D) a larger percentage of children enrolled in school
The transition to a market-oriented economy characterized by rising unemployment and
higher prices suggests that a social safety net including unemployment compensation,
and food, clothing, and housing subsidies for those in need will be politically
A) detrimental.
B) popular.
C) unnecessary.
D) dangerous.
Markets fail to produce an efficient allocation of resources, but governments also fail
because
A) the managers of government agencies are trying to maximize the profit of their
agency and they ignore the implications that this has on other departments.
B) the optimal level of public goods may be too expensive for the society to produce.
C) elected officials will act selflessly for the good of society and ignore their own
self-interest.
D) the measurement of social damages and benefits is difficult and imprecise.
You lend a friend $10,000 for a year at an annual interest rate of 15%. At the end of the
year your friend must pay you ________ in interest.
A) $133
B) $750
C) $1,500
D) $3,000
Table 3
B’s Strategy
Refer to Table 14.3. Firm A s dominant strategy isʹ
A) to advertise.
B) to not advertise.
C) dependent on what Firm B does.
D) indeterminate from this information, as no information is provided on Firm A s risk ʹ
preference.
A new fertilizer which greatly improves the corn crop yield is being widely used by
corn farmers. You accurately predict that this
A) will shift the supply curve of corn to the right, the equilibrium price of corn will
increase, and the demand for corn will fall.
B) will shift the supply curve of corn to the right, the equilibrium price of corn will
decrease, and the quantity demanded of corn will increase.
C) will shift the supply curve of corn to the left, the equilibrium price of corn will
increase, and the quantity demanded of corn will decrease.
D) will shift the supply curve of corn to the left, the equilibrium price of corn will
increase, and the demand for corn will fall.
Figure 18.1
Refer to Figure 18.1. In order to ________, all the assumptions of perfectly competitive
market theory must hold.
A) reach point A or any other point on the utility possibilities frontier
B) reach point B or any other point inside the utility possibilities frontier
C) any point beyond the utility possibilities frontier
D) All of the above answers could be correct.
Which of the following characteristics is generally representative of developing
countries relative to developed countries?
A) a larger percentage of the labor force in urban areas
B) a lower infant mortality rate
C) a lower degree of equality in the income distribution
D) a lower rate of illiteracy
If someone can produce a good at a lower opportunity cost, she ________ in producing
that good.
A) has a comparative advantage
B) has an absolute advantage
C) experiences no diminishing returns
D) experiences no marginal costs
Related to the Economics in Practice on page 223: A study discussed in the Economics
in Practice found that NFL teams that trade two lower draft picks for one higher pick
tend to ________ player productivity and therefore ________ for that pick in terms of
the draft-pick trade.
A) underestimate; overpay
B) underestimate; underpay
C) overestimate; overpay
D) overestimate; underpay
Which of the following help to correct for the market failure of imperfect information?
A) truth-in-advertising regulations
B) used car warranties
C) medical licensing
D) All of the above are correct.
In the short run, a firm
A) has at least one fixed factor of production.
B) cannot enter an industry where positive profits are being earned.
C) can exit an industry, and all of its factors of production are variable.
D) both A and B are correct.
Which of the following is held constant along the demand curve?
A) price of the good
B) quantity
C) income
D) both A and B
A perfectly price elastic supply curve will be a(n) ________ line.
A) horizontal
B) vertical
C) upward sloping
D) downward sloping
Figure 15.6
Refer to Figure 15.6. If Trollio’s T-shirts is producing 50 silk-screened T-shirts and
selling each T-shirt at $16, then in the long run this firm should
A) exit the industry, as it is earning a zero economic profit.
B) increase output to 60 silk-screened T-shirts.
C) reduce output to try to increase profits.
D) continue to produce 50 silk-screened T-shirts and sell each T-shirt for $16.
The sum of the utilities from each possible outcome of a situation weighted by the
probability of that outcome is known as ________.
A) expected utility
B) total utility
C) marginal utility
D) expected value
Stereo Sound Unlimited has a monopoly over the installation of surround sound
systems. If Stereo Sound Unlimited’s total revenue from installing 10 sound systems is
$20,000 and its total revenue from installing 11 sound systems is $19,000, what is the
marginal revenue of the eleventh sound system?
A) -$2,000
B) -$1,000
C) $2,000
D) $3,800
All of the following are problems facing some developing countries EXCEPT
A) chronic food shortages.
B) explosive population growth.
C) hyperinflations.
D) low infant mortality rates.
Most mortgage loans in the United States are written by
A) Fannie Mae.
B) banks.
C) savings and loans.
D) mortgage brokers.
The short-run average variable cost curve eventually begins to increase at an increasing
rate because of
A) diseconomies of scale phenomena.
B) a constraint that does not allow the firm to change its production technology.
C) diminishing returns phenomena.
D) increasing returns to scale to capital.
If revenue is less than ________, profit is ________.
A) total cost; negative
B) total fixed cost; positive
C) total variable cost; zero
D) total cost; positive
Figure 10.3
Refer to Figure 10.3. If labor supply is given by S0 and the firm is using K1 units of
capital, this firm should hire ________ units of labor to maximize profit.
A) I0
B) I1
C) I2
D) I3
You are certain that the restaurant industry’s normal rate of return is 12%. You would
expect a(n) ________ normal rate of return for a soft drink manufacturing industry that
people consider much less risky than the restaurant industry.
A) 12%
B) less than 12%
C) above 12%
D) risk free (the rate on government bonds)
Figure 3.19
Refer to Figure 3.19. When the economy moves from Point E to Point B, there has been
A) an increase in supply and an increase in quantity demanded.
B) an increase in both supply and demand.
C) a decrease in supply and an increase in demand.
D) a decrease in supply and an increase in quantity demanded.
Because a famous painting is fixed in supply, its price is
A) demand determined.
B) supply determined.
C) inelastic.
D) independently determined.
Figure 16.4
Refer to Figure 16.4. The ________ level of output of this product is 15.
A) unregulated
B) efficient
C) break-even
D) market
Related to the Economics in Practice on page 39: In all societies, resources are limited
relative to people’s demands, and there are ________ tradeoffs individuals face in rich
countries versus poor countries.
A) fewer
B) large differences in the kinds of
C) virtually no differences in the types of
D) more important
In 2006, the infant mortality rate was ________ per 1,000 births in low-income
countries.
A) 9
B) 9
C) 8
D) 114
If marginal costs for a firm are constant would the average total cost curve still have be
u-shaped? Explain.
Alan’s Roast House sells roasted peanuts in a competitive market. The firm employs
labor at a wage rate of $6 per hour and rents capital for $15 per hour. At its current level
of labor and capital, the marginal product of labor is 12 and the marginal product of
capital is 40. Is the firm currently maximizing profit? Explain.
How is total revenue calculated? If a firm sells 350 units of a product at a price of $8
each, what is the firm’s total revenue?
When private companies offer health insurance to their employees the insurance carrier
they contract with typically requires that all employees be obligated to participate and
pay premiums whether they wish to or not. What problem is the health insurance
company trying to avoid? How does this policy mitigate this problem?
Identify the six basic requirements that economists generally agree must exist for a
successful transition from socialism to a market-based system.
What conditions are necessary for a cartel to work? Diagram equilibrium price and
output determination in a collusive oligopoly market. Explain how a decrease in
demand accompanied by cheating by members can help break up a cartel.
Define the fertility rate and the mortality rate.
What is the law of diminishing marginal utility?
Why were Thomas Malthus’ fears of increasing impoverishment for Europe and
America unfounded?
Make the argument that sales taxes could be considered as a regressive tax.
Evaluate the following two statements:
“He is income rich but he is not very wealthy”
“He is income poor but he is wealthy”
Explain the four sources of market failure.
The cross-price elasticity between natural gas and heating oil is estimated to be 2.3. The
cross-price elasticity between natural gas and electricity is estimated to be -0.8. What is
the relationship between natural gas and heating oil? What is the relationship between
natural gas and electricity? Explain.
Assume that the above figure represents the domestic supply and demand for
coffee.The domestic price with no trade is represented by $5.50. The price with free
trade is represented by $4.00. Assume that the government places a $1 per pound tariff
on imported coffee, which decreases the domestic quantity demanded of coffee by 100
million pounds and increases domestic production by 100 million pounds. Draw the
rectangle that would represent the amount of tax revenue that the government would
realize from this tax and calculate the dollar figure.
What is the financial capital market?
Why might an automobile labor union lobby Congress to place tariffs on labor-saving
devices like automated welding and riveting machines? Why might this be a mistake?
Explain how the price system eliminates a shortage.
Explain what the phrase “price rationing” means.
Connor receives a weekly allowance of $20 from his parents that he uses to purchase
two goods: Pokemon cards (which cost $5 per pack) and comic books (which cost $4
each). Draw Connor’s budget constraint. Show what would happen if Connor’s parents
lower his allowance to $15 per week. Does the opportunity cost of a comic book
change?
Explain how an increase in the price of leather brought about by shift in tastes may
lead to an increase in the supply of beef.